Oil tax debate gets some specifics

Administration, consultants, tell legislators of proposal's cost

Tom Williams, right, Senior Tax and Royalty Counsel for BP, talks with Sen. Johnny Ellis, D-Anchorage, seated, as Damian Bilbao, center, Head of Finance of Develpments and Resources for BP, talks with Sen. Bert Stedman, R-Sitka, left, during a break in the Senate Finance Committee meeting about changing oil taxes on Friday at the Capitol.

Co-Chair of the Senate Finance Committee Sen. Bert Stedman and other members listen Friday to ConocoPhillips Alaska representatives testify on SB 192, a bill that would change the current oil tax rates.

ConocoPhillips Alaska's Bob Heinrich, Vice President of Finance, left, and Scott Jepsen, Vice President of External Affairs, testify in front of the Senate Finance Committee on Friday at the Capitol on Senate Bill 192 which would change the current oil tax rates.

In sometimes intense meetings before the Senate Finance Committee this week, various interests in the oil tax debate came together and reached agreement on how much various tax plans would cost the state.

While Gov. Sean Parnell and his oil industry allies remain widely separated from legislators on tax cuts of $2 billion or more, they were able to put numbers on each of the proposals they’re debating. Parnell first proposed House Bill 110, which won passage in that body last year, before stalling in the Senate.

House Bill 110 would bring the state $3.824 billion in production taxes next year at the current price of $120 per barrel, according to legislative consultant PFC Energy.

Under the current tax regime, Alaska’s Clear and Equitable Share Act, or ACES, production tax revenues would be $6.073 billion next year.

The actual production tax revenue to the state would be much lower, because those numbers do not include several hundred million dollars in tax credits that would go back to companies.

In addition to production taxes, the state also gets smaller amounts for royalties, income taxes and property taxes, making up the total state oil revenue.

The numbers from PFC Energy correspond to the numbers developed by the Department of Revenue, said Commissioner Bryan Butcher.

Oil companies have objected to the state’s progressive oil tax, which takes a larger share of profits as oil prices rise. Senate Finance Committee Co-chairman Bert Stedman, R-Sitka, said SB 192 reduces the state take at higher oil prices.

The competing tax plans change dramatically at different oil prices, with the Senate plan intended to reduce the state’s take somewhat at high prices, stay the same in the middle and increase the state’s share at low prices.

Butcher said he agreed it did that, but said it was not enough to make a difference.

“In general the system is kept neutral at $100 a barrel, the tax is increased at low prices due to the gross minimum tax floor provisions,” he said.

“The tax is a small reduction for many companies at above $100 a barrel,” he said.

Butcher said the change wasn’t enough to get the state the new investment it needs to boost oil production.

While some oil companies said they appreciated reducing taxes as prices went higher, BP told legislators Friday that’s not how it makes its investment decisions.

Any reduction in taxes at above $120 per barrel is not going to affect how BP looks at its business decisions, said the company’s Damian Bilbao.

“We live in a more conservative, experienced-based planning world,” he said.

What BP needs to know is that its investments will reach the company’s desired profitability levels at prices with which they’re likely to be faced, he said.

While BP minimized the value of the tax cuts at high per barrel prices, Butcher minimized the value to the state of increasing taxes at low values.

If oil prices drop below $60 a barrel, the state will have financial problems no matter what the tax rate is, he said.

“Even a tax increase would have only minimal benefit to the state,” Butcher said.